Essays on Contract Design in Marketing

Download or read book Essays on Contract Design in Marketing written by Ying Bao and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis examines how firms design their contracts in different marketing contexts. The first essay theoretically investigates the impact of external advances in consumption tracking technologies on the design of pricing contracts. Using the context of mobile banking applications that help consumers track their spending and avoid penalty fees for overdrawing their accounts, I find that in response to the availability of consumption tracking, a firm would lower its penalty fee (just enough to disincentivize consumers from using it). As a result, consumer welfare improves even if consumers do not use consumption tracking technology. When consumers vary in their forgetfulness, the availability of consumption tracking technology can hurt some consumers, while helping others. The second essay examines contracts in the context of new product development. I develop a theoretical model to explain the prevalence of standardized incentive plans, which provide a reward without considering the differential amount of resources invested in the projects. I model the phenomena where a representative project manager has private information about the quality of her own project and can manipulate the signal of project quality that the organization receives during the identification/resource-allocation stage. I show that when the manager manipulates the signal, a standardized incentive plan encourages the manager of a high-quality project to manipulate more and stand out. I argue that under some conditions a standardized incentive plan can be preferred because such a plan leads to more accurate resource allocation, even though a customized incentive plan is more efficient in inducing implementation effort.